Indian fantasy operator Dream11 and unicorn real money gaming firm Games24/7 have decided to offer discount points or promo cash to users equal to the amount of GST. The changes are in backdrop of new tax regime of 28% tax on deposit amounts effective from today.

The unicorn gaming companies said the deposit amounts will be considered to be inclusive of GST. For example, when a user adds Rs 100 to  Dream11 wallet, Rs 78.13 will be credited as deposit and Rs 21.87 will be towards GST deduction. This is in line with Rule 35 of the CGST Rules.

In the above said scenario, Dream11 is offering discount points worth Rs 21.87. The points are valid for 90 days and each time a player enters a contest 22% of the entry amount is deducted from discount points. Meanwhile, Games24/7 brand RummyCircle said any promo cash will be automatically be used first to play a Cash Game, Tournament, Rumble or Contest.

By adopting to give discount points or promo cash, Dream11 and Games24/7 have decided to absorb the impact of GST without impacting the players. The companies have updated their FAQ pages in this regard.

Section 15(3) of the CGST Act says discounts are exempt from valuation of taxable supplies if – (a) before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if:

• such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and
• input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply.

Earlier several reports have pointed that operators with scale are best placed to navigate the new tax regime, and Dream11 and Games24/7 absorbing the tax impact on players is one such example.

But this option is not be feasible for small start-ups which may not be financially equipped to absorb the GST impact.

Dream11 is amongst the few profitable internet based businesses, and expects to see 80% drop in profit due to tax impact while Games24/7 is valued above billion dollars in the last funding round. But unlike many small start-ups that have shut or may shut, Dream11 and Games24/7 are better placed to withstand the GST regime change.